The decline reflects investor concern that AT&T’s takeover of Time Warner is not necessarily a done deal, as the Justice Department has opted to challenge a federal judge’s decision in its antitrust lawsuit seeking to block the transaction.
On Thursday, AT&T CEO Randall Stephenson told Variety he was not surprised by the government’s move and that he wasn’t worried that the DOJ action would derail the Time Warner pact, which closed last month.
“We’ve been to the court once and we got an order based on the law,” Stephenson said at the the Allen & Co. conference in Sun Valley, Idaho. “The judge did a very fact-based, thoughtful and thorough order. It’ll be evaluated on those grounds.”
On June 12, U.S. District Judge Richard Leon ruled in favor of AT&T-Time Warner, in a definitive opinion that rejected all of the government’s arguments. The judge also strongly suggested that the Justice Department not to seek a stay to block the merger as it pursued an appeal.
The DOJ’s odds of winning on appeal are low — but “they are not zero,” MoffettNathanson principal analyst Craig Moffett wrote in a research note. The Justice Department’s lawyers will likely focus on Leon’s flat-out rejection of the premise that a programmer (in this case, Turner) that is owned by a distributor (AT&T) would negotiate any differently with other TV services.
There is “at least a reasonable basis for the appeal,” Moffett wrote.
In any case, one of the big winners from the latest development is Disney, according to Moffett. That’s because the DOJ’s challenge to AT&T-Time Warner will give 21st Century Fox’s board justification to reject Comcast’s bid for major Fox assets — and choose Disney (as a horizontal merger) over Comcast (a vertical merger) as the path of lower regulatory risk.
“Whether [the DOJ’s appeal] puts a damper on all vertical M&A remains to be seen,” Moffett wrote. “But this is certainly not the ‘anything goes’ M&A regime that many thought we had, shortly after the 2016 election.”
— Cynthia Littleton contributed to this report.